FCC Special Access Reboot — And AT&T’s Somewhat Disingenuous Response

Good news, the FCC has decides to one again reboot its seven year old proceeding on “special access.” Given that I have been flogging the FCC since 2006 to do something about this, with occasional reminders since then, I am obviously pleased. AT&T, one of the chief beneficiaries of the current deregulated monopoly regime, is less pleased. AT&T’s chief argument against the FCC denying it yet another rate hike and demanding AT&T and the other telcos fork over data critical to determining if they are charging monopoly rents is: “Why you bringing up old stuff?”

This is not exactly the pinnacle of legal reasoning or persuasive policy. But in AT&T’s defense, when it’s all you got you make the best of it. Bob Quinn does a masterful job of portraying this as being about legacy copper phone bits that don’t matter anymore and that somehow the FCC taking action here is distracting us all collectively from building the super cool uber fast Gigabit networks we need and would build if only the FCC would let us buy T-Mobile. Or something.

As I explain, however, this isn’t some musty old copper no one gives a crap about, but a rather critical bit of infrastructure generating between $18-20 billion annually and impacting pretty much every aspect of mobile communications and broadband access. And with the cable operators about to become total BFFs with Verizon, what little competition that exists in the special access market appears ready to disappear altogether.

I explain below . . . .

For those new to this, “special access” is the rate businesses and competitors to telcos pay to telcos for wholesale access to their telecommunications capacity. When you place a call over your Sprint or Cricket cell phone, the call goes to the tower. What generally moves it from the cell tower to the Internet “cloud” or the public switched telephone network is a special access line. If a business wants to buy a high capacity line, it does so under special access. You can watch my video explanation of what special access means and why you should care here.

For consumers, what happens when the cost of these special access circuits goes up is similar to what happens when the price of a barrel of crude oil goes up. No one buys crude oil by the barrel. But because we as a society are dependent on crude oil, an increase in the price of a barrel of crude raises the price of everything from the electricity that runs my air conditioning to the gas in my car to the goods I buy at the store. Similarly, if special access prices go up, the cost to my cell phone provider and the cost to enterprise customers that use these services go up — which ultimately impacts what they charge me.

Back in ye olde Ma Bell days, special access was a monopoly for Ma Bell and regulated. then we broke up AT&T into Baby Bells, or “incumbent local exchange carriers” (ILECs). Of course, since the ILECs controlled all Ma Bell’s lines, special access remained a monopoly and the FCC regulated it as such. Then came the Telecommunications Act of 1996, with the promise of gajillions of overbuilders bringing so much competition to the marketplace we wouldn’t need to regulate special access rates anymore. Not one to wait on actual facts, the FCC deregulated the special access market by setting some fairly easy to meet “triggers” that when a market got competitive enough, the special access rates were deregulated.

Unfortunately, as explained by a Government Accountability Office (GAO) Report in 2006, the FCC screwed up the triggers in two ways. First, they made it way too easy for a market to be declared “competitive.” Second, the FCC included no mechanism to re-regulate if something happened to the competitors (like, say, being driven out of business by ILECs after the FCC deregulated) and the market dropped back below the already pathetic competition trigger. As a result, the special access market remained an effective monopoly. As the Baby Bells consolidated, the vast majority of special access circuits fell under the control of AT&T, Verizon and CenturyLink. To be clear, however, these companies do not overbuild and compete against each other — each maintains its local monopoly.

Despite opening a proceeding in 2005 to determine whether it had perhaps been a shade too optimistic about emerging competition when it deregulated special access, the FCC has not done much. Mostly, the FCC has contented itself with asking the same set of questions every couple of years about the special access market and whether or not its “competitive.” Unfortunately, the people with the evidence to prove that the telcos are charging monopoly rates are the telcos allegedly charging the monopoly rates. So after a few years of the telcos saying everything is totally competitive and special access customers saying they aren’t, the FCC decides to “update the record” by asking more questions. Rinse, lather, repeat for 7 years.

So while the legacy telcos have lost residential phone customers to cable and wireless, they have needed to replace these revenues by jacking up the cost of special access circuits. This has the added benefit of raising the cost of doing business to their wireless competitors (e.g., Sprint), making it harder for them to compete. (Regular readers may recall this came up in the AT&T/T-Mobile merger.) As a result, special access circuits are about $18-20 billion market annually and account for a significant portion of AT&T’s wireline revenue. Which is not bad for musty old copper no one gives a damn about.

So when the FCC Chairman announced to everyone’s great surprise that he had intended to freeze AT&T’s planned special access rate hike (“Rethink possible — now double that!”) and actually use its statutory power to compel the big telcos to provide data on their special access pricing, it is not surprising that AT&T got a tad peeved. Unfortunately, as I noted before, AT&T really doesn’t have a lot it can say here. Special access is clearly within the FCC’s jurisdiction. Not only has the FCC had this proceeding open for years, it has twice promised the D.C. Circuit it will actually do something about it Real Soon Now. So the usual fallbacks — that wascally, dethspicable Genachowski is once again mad with power and engaged in an unwarranted agency power grab well beyond the FCC’s delegated authority — doesn’t work here. Nor can AT&T blame high special access rates on the “spectrum crisis,” or claim that it is raising special access rates because the FCC blocked their efforts to acquire T-Mobile.

So what’s left is an argument that, really, why does anyone care about this silly Title II telecom stuff anymore? Why bring up old stuff? Happily, this has a fairly straightforward answer.

BECAUSE YOU ARE MAKING BILLIONS IN MONOPOLY PROFITS AND DRIVING UP THE COST OF CELLULAR SERVICE FOR CONSUMERS. OH YEAH, AND IT VIOLATES SECTION 201 OF THE COMMUNICATIONS ACT. That’s why.

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